Michael Burry's Short Bet Against the AI Market: A Cautionary Tale Amid Tech Hype

Michael Burry's Short Bet Against the AI Market: A Cautionary Tale Amid Tech Hype - Blockchain.News

Michael Burry, the legendary investor known for his prescient bet against the 2008 subprime mortgage crisis, has recently positioned himself against one of the hottest sectors in the stock market—artificial intelligence (AI). As AI stocks have soared to unprecedented valuations in 2025, Burry has taken large short positions, signaling serious concerns about an AI market bubble fueled by hype, questionable accounting, and unsustainable business economics. This article explores the details and implications of Burry’s bearish stance on AI, with a focus relevant to blockchain and technology investors.

The Context: AI's Meteoric Rise and Investor Frenzy

AI has become the defining technology trend of this decade, powering advances from autonomous vehicles to generative AI creativity tools. This surge has driven massive capital flows into AI-related stocks, especially companies like Nvidia, Palantir, Meta, and Oracle—the so-called “AI hyperscalers.” These companies have seen their stock prices skyrocket on expectations of AI-driven profits and dominance, making AI the centerpiece of many portfolios.

However, with such rapid appreciation comes the risk of speculative excess. Drawing parallels to previous tech bubbles such as the late 1990s dot-com craze, observers have warned that AI’s current valuations might not be underpinned by realistic revenue or profit trajectories. Now, Michael Burry has entered the conversation with a pointed warning.

Michael Burry’s Bet Against AI

Burry has placed approximately $1.1 billion worth of put option bets against major AI-related stocks including Nvidia and Palantir. Put options give him the right to sell these stocks at a set price, profiting if the stock prices fall. His large stake is a clear signal of his conviction that an AI crash is possible, if not imminent.

His critique centers on the financial reporting of AI “hyperscalers,” particularly focusing on their depreciation accounting. Burry claims that companies like Meta and Oracle have lengthened depreciation periods for their expensive specialized AI computer equipment. By doing this, these firms reduce their annual depreciation expense, artificially inflating reported earnings and masking the true cost of their AI investments. Burry estimates that this accounting treatment could have overstated earnings by approximately $176 billion between 2023 and 2028, misleading investors about the sector’s profitability.

Why This Matters for Blockchain and Tech Investors

Although AI and blockchain address different technological challenges, the lessons from Burry’s short position are broadly instructive for technology investors. Both fields have experienced significant hype cycles, driven by the promise of revolutionary change. However, when it comes to investing, there is a critical difference between potential and realized economic value.

Valuation Discipline: Burry’s warning highlights the need for rigorous valuation and skepticism towards inflated earnings reports. In the blockchain space too, many projects and companies have soared based on speculative narratives rather than demonstrable cash flows or sustainable business models.
Accounting Transparency: Investors must scrutinize how companies—and projects—account for their capital expenditures, including specialized hardware. Opaque or aggressive accounting can distort the true health of ventures.
Bubble Risks: Mindful of bubbles in tech—whether AI or blockchain—diversification and risk management remain essential. No technology, no matter how transformative, is immune to market cycles.

What Could Trigger an AI Market Downturn?

Burry’s short positions reflect his view that if the AI sector fails to meet sky-high earnings expectations or if the overstated profits are corrected, stock prices could face sharp declines. Other possible triggers include:

Slowing adoption of AI applications due to technical or regulatory hurdles.
Intensified competition reducing pricing power and margins.
Rising interest rates increasing the cost of capital and making speculative tech stocks less attractive.
Broader market corrections impacting high-growth sectors disproportionately.

Conclusion

Michael Burry’s decision to short the AI market is a high-profile signal that caution is warranted amid the exuberance. While AI’s transformative potential is undeniable, investors should be wary of accounting gimmicks and inflated valuations. For blockchain and tech investors, Burry’s bet serves as a reminder to approach innovation with a rigorous, skeptical lens, combining enthusiasm with financial discipline.

Ultimately, technology cycles have always had winners and losers. The challenge is to identify the sustainable from the speculative before the market corrects. Burry’s short on AI may turn out to be a timely warning in what could become a defining investment story of this decade.

Sources: CNBC: 'Big Short' investor Michael Burry accuses AI hyperscalers of artificially boosting earnings, BBC: Trader who inspired The Big Short bets against AI as tech shares fall, Business Insider: Why 'Big Short' Michael Burry Is Betting Against Nvidia, Palantir, AI, Saxo Bank: The Big Short: Is Michael Burry right about the AI trade?, Fortune: The 'Big Short' investor betting $1 billion against the AI bubble says ...

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